Some of the increases were brought on VAT-related hikes during January

United Arab Emirates, February 6, 2018

Input costs for UAE’s private sector businesses rose at the fastest pace in 74 months during January, primarily as a result of the rollout of value-added tax (VAT).

However, across the board, businesses were able to report a fairly strong start to the year, according to the latest Emirates NBD Purchasing Managers’ Index (PMI).

There were indications that businesses held back from passing on the full VAT-related cost inflation to consumers.

“While selling prices also increased in January, the survey suggests that the full rise in input costs was not passed on to consumers,” Khatija Haque, Head of MENA Research at Emirates NBD, said.

The introduction of VAT impacted both prices and purchases in January.

Overall input costs rose faster than in December, with companies linking higher purchase prices to the impact of the new VAT. Purchase costs increased at the sharpest rate since November 2011.

Output charges increased for the first time in five months, with panellists suggesting that this was due to the inclusion of VAT in selling prices.

There were gains too for employment, “on the back of increased workloads”, the report finds.

The seasonally adjusted Emirates NBD UAE PMI posted 56.8 in January, down from 57.7 in December but still “signaling a marked monthly improvement in business conditions”. Companies saw a further sharp increase in new orders last month, linked to competitive prices and the securing of new clients. New export orders rose for a second month running.

Businesses were also able to report an improvement in confidence in January – in fact, sentiment was at its strongest since June 2015. Panelists predicted that activity will increase once the new VAT system becomes more familiar, with higher new orders also expected to support output growth.